In a significant decision handed down last Thursday, April 22, 2021, the U.S. Supreme Court ruled that the Federal Trade Commission (FTC) cannot, in the first instance, seek monetary remedies in federal court. Rather, it must first obtain a cease and desist order and, only after a violation of that order, can it seek penalties or other monetary relief, such as disgorgement. Read on for why this should matter to you.
Federal Trade Commission
First, a bit of background. Established in 1914, the FTC is a federal agency with a unique dual mission – promoting competition and protecting consumers. By design, it is bipartisan, with no more than three of its five commissioners allowed to come from the same political party. Its mission is carried out by two legal bureaus, staffed with lawyers and para-professionals – the Bureau of Competition and the Bureau of Consumer Protection. A Bureau of Economics supports both of them.
The Federal Trade Commission Act makes unlawful “Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce…” It is empowered to enforce not just the FTC Act but all of the antitrust laws as well. Towards this end, the Bureau of Competition seeks to “prevent anticompetitive mergers and other anticompetitive business practices in the marketplace.” The Bureau of Consumer Protection “protects consumers against unfair, deceptive or fraudulent practices.” The Bureau of Consumer Protection deals with a wide variety of issues, including false advertising, fraud and misrepresentation, robocalls, breaches of data security and issues related to privacy, to name just a few.
The FTC as an enforcement agency has both investigative and subpoena power, and also handles administrative litigation. Interestingly, when it determines that a violation has occurred, it has two avenues to pursue legal action against the alleged violator. The first option would be to bring suit in its own administrative court before an administrative law judge (ALI). The ALJ’s decision can be appealed to the full commission and their decision can be appealed to the relevant Circuit Court of Appeals. What is critical, though, is the FTC Act only empowers the FTC to seek a “cease and desist order” when it pursues an administrative action. It cannot seek to recover money.
The second avenue available to the FTC is an action in federal court. Pursuant to 15 USC §53(b), in can proceed directly to federal court to obtain a “temporary restraining order or a preliminary injunction.” Additionally, the FTC, “in proper cases,” may seek a “permanent injunction.” Under Section 45(l), the FTC can also obtain civil penalties against those who violate final cease and desist orders, and it can obtain “mandatory injunctions and such other and further equitable relief as they deem appropriate in the enforcement of such final orders of the Commission.”
The Supreme Court decision
For years, the FTC has claimed that it could go directly to federal court and seek equitable monetary relief, such as disgorgement, without first obtaining a cease and desist order in an administrative action. In the instant case, AMG Capital Management, LLC v. Federal Trade Commission, the FTC did just that. It eschewed administrative action and sued in federal court, claiming that AMG engaged in “unfair or deceptive acts.” According to the FTC, payday lender AMG included in the fine print of its loans a clause that automatically renewed the loan. The FTC claimed that AMG made more than $5 million in payday loans, amounting to more than $1.3 billion in deceptive charges. The district court ordered it to pay $1.27 billion in restitution and disgorgement. On appeal, AMG claimed that the FTC did not have the authority to seek such monetary relief because it failed to first obtain a cease and desist order and prove that AMG violated that order. The Ninth Circuit rejected that claim, but a unanimous Supreme Court did not.
The Supreme Court carefully went through the development of the statute and how the dual legal approach afforded to the FTC developed. The court reasoned that the statute means what it says and does not mean what it does not say. As Justice Stephen Breyer wrote, nowhere does the statute allow the FTC to seek monetary relief in federal court without first obtaining a cease and desist order. Had congress meant the words “further equitable relief” in Section 45(l) to allow the FTC to seek monetary relief, he reasoned, it would have included it in the section that authorized the FTC to go to federal court, namely Section 45(b).
What this means
As Acting Chairwoman Rebecca Kelly Slaughter put it, the Supreme Court has “deprived the FTC of [its] strongest tool.” Litigating an administrative action against the FTC is certainly no walk in the park, And it consumes a company’s time and resources. But without the threat of a monetary action, the calculus many companies have to make in deciding whether to litigate or settle shifts radically. Companies no longer must fear a huge award against them and may well choose to litigate against the FTC if they believe that their conduct was appropriate. Given the wide spectrum of issues that the FTC is empowered to enforce, all consumer-facing companies must pay attention to the FTC and its actions.
The FTC is now turning to congress: “We urge Congress to act swiftly to restore and strengthen the powers of the agency so we can make wronged consumers whole.” Indeed, the acting chairwoman will be appearing before congress on Tuesday, April 27, urging them “to act quickly and advance legislation to protect and strengthen the FTC’s powers.” Additionally, state attorneys general (AG) may fill the void. Each state has its own version of the FTC Act and they generally authorize restitution. Accordingly, until congress authorizes the FTC to obtain monetary relief, the FTC may work with multiple attorneys general to spearhead multi-district litigation. State AGs have already been increasing their enforcement in the last few years and this just might spur further action on their part.
As always, stay tuned.